- Q4 LFL sales down 3.8 per cent
- Q4 total sales down 1.5 per cent
- Convenience stores growth slows to 15 per cent
- Online growth slows to 6 per cent
Sainsbury's fourth quarter was worse than analyst expectations, against a very tough comparative period, as the supermarket group confirmed that market growth was slowing.
Market share was maintained but like-for-like sales fell 3.8%, or 3.1% if fuel is excluded, bringing the group's long-running record of rising numbers to an abrupt end, with total sales down 1.5%, or 1% ex-fuel.
Chief Executive Justin King, who announced in January that he would be stepping down in July, said: "The market is now growing at its slowest rate since 2005, with falling food inflation in particular benefiting customers. The later timing of Easter and Mother's Day, which fall in quarter one of our new financial year, and unseasonable weather have also contributed to lower market growth year-on-year."
King added that although there were some indications that the economy was beginning to turn around, he expected the outlook for customers to remain challenging for the coming year.
Many analysts expect the big supermarkets to be hit by Morrison's recent tactical price rebasing to compete with discounting rivals like Aldi and Lidl, with Sainsbury's expected to be hardest hit due to its high operational gearing.
However, while King and his board have decided to limit spending on new stores to 50 openings for the coming year, the expansion of the convenience business continues apace with 22 added in the quarter alongside a refitting programme in existing stores.
Convenience stores produced sales growth of 15%, down from 18% in the third quarter, while the online business grew 6%, down from 10% in the previous quarter, as marketing was cut while a new website service was rolled out.
The FTSE 100 group also pointed to recent cuts in its prices for milk, bread and eggs and the strength of its own-brand ranges being ahead of the market in terms of penetration and 20% cheaper on average.
"We remain confident that our differentiated offer, supported by 'value for values', Nectar data and Brand Match, will allow us to outperform our peers in the year ahead," said King.
Brokers cautious despite historically low valuation
Jefferies retained its 'hold' rating on the stock, saying that its fourth-quarter trading update shows "weakening trends" with a like-for-like sales decline of 3.1 per cent coming in "slightly worse than feared".
The broker also said that the stock's earnings-based valuation remains at the low-end of the group's history, but kept a cautious view given that "forecast risk remains firmly to the downside".
The indications of a softening trend led Shore Capital to suspect a weaker than anticipated entry rate into the new financial year, "and against an industry gross margin investment environment that is demonstrably more shaky year-on-year" and so cut its forecasts and recommendation to 'hold'.
Shore is now less confident that Sainsbury can deliver rising trading margins in its new financial year, as previously anticipated, "while out-performance of Morrison's and Tesco may feel a somewhat pyrrhic achievement".
Panmure Gordon said that while it believed Sainsbury has the most settled offering in terms of formats and products, "we think it is inevitable that margins will fall given the industry conditions" and has cut margin assumptions from 3.6% to 3.1% to drive a 17% reduction in 2015 earnings forecast from 34.6p to 28.7p per share and retained its 'hold'.
Shares in SBRY recovered from initial falls to be up 1.25% at 315.38p at 11:20 on Tuesday.